Enthusiasm for sustainable investing is relatively new in Asia but HNW individuals in the region appear to be keener on the concept than those from other regions, a study shows.
Asia-based high net worth investors are keener on environmental, social and governance (ESG) approaches to putting money to work than their global peers, although they have ground to make up against regions such as North America and Europe, according to a new report.
Enthusiasm – at least in terms of survey responses – for the ESG approach appears to be strong in Asia, research conducted by The Economist Intelligence Unit and commissioned by RBC Wealth Management, has found. In May to June, the EIU surveyed 2,094 individuals, including 440 respondents from four Asian economies: China, Hong Kong, Singapore and Taiwan.
“The global sustainable investment market, currently already worth tens of trillions of dollars, will likely only expand further as ethical concerns increase in importance for the well-heeled,” the organisations said in a statement about their report.
“In Asia, this trend is still in its infancy, although signs point to a future boom in ethical investing as young high net worth individuals across the region supplant their elders as the chief source of investment wealth,” they continued.
In terms of dollar value invested along sustainable lines, however, Asia is still playing catch-up with other regions. According to figures published in late 2017, $52 billion of funds in Asia (excluding Japan) were managed according to ‘responsible’ investment strategies, compared with $8.7 trillion in the US and a $12 trillion in Europe.
This publication asked RBC Wealth Management why Asian investors appear so hot for ESG.
“Asia is the new powerhouse in wealth creation. HNWIs in the region have built businesses and invest with a global mindset, which, in my view, differs from the traditional western markets which may be more insular,” Mike Reed, head of wealth management for Southeast Asia and chief executive of RBC’s Singapore branch, said. “For this reason, HNW individuals in Asia are more aware of the impact of global macro-economic events and how it may affect their investments, businesses and property portfolios. Our focus is on a client segment we call Asia’s Global Families, internationally-mobile HNW individuals and ultra-HNW individuals, who are by virtue, global. They may live in Asia, own property in London and send their children to school in the US. For those reasons, their involvement in the global markets and awareness of international events is inherently heightened.”
“One of the only reasons we don’t have more impact investing in Asia to date is that it is still a fairly new concept and approach for many members of the investment community, but it is rapidly gaining traction,” Amit Bouri, founder and CEO of The Global Impact Investing Network, said. “The upfront challenge is awareness, and that’s spreading rapidly. Awareness is converting into real interest, and increasingly to capital deployment.”
The report also noted that Asian investors are taking some risks off the table and diversifying more.
In a world where interests rates are often almost zero or negative, this publication asked RBC’s Reed how he explained this risk approach at a time when investors need returns to fund their retirement.
“After global economic uncertainty, the next two [respondents’] concerns were inflation (44 per cent) and the increased cost of living (44 per cent). When asked about their most important financial goals, those surveyed said; protecting wealth for future well-being (47 per cent), increasing my wealth (41 per cent) and supporting lifestyle (36 per cent) are those that ranked highest,” Reed said.
“Much of the wealth created in Asia is first generation – HNW individuals started successful businesses or invested their wealth effectively, most commonly in real estate. The next generation, who will take over as stewards of the family wealth will be responsible for sustaining these legacies. What we find with Asia’s Global Families is that this means diversifying both their financial and human capital. By sending children to school abroad, buying property outside of Asia or expanding their businesses into North America, they are able to seek higher returns but diversify some of their risk. We find that Canada, the US and UK are favoured geographies for Asia’s Global Families,” he continued.
Among other findings, the report found that younger adults are keener on ESG approaches. Asian Millennials are more focused on responsible investing, with a fifth saying that over the next five years, their investment strategy will become more ethical by focusing on ESG and impact investing, compared with 11 per cent of Baby Boomers.
“Studies like this one can give our clients and prospects the confidence that they aren’t alone in dealing with these complexities or the issues they’ve identified as important to them, especially as they plan the transfer of their wealth and beyond,” Reed added.